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FIX: The Fear Index—Measuring Market Fear

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Topics in Numerical Methods for Finance

Part of the book series: Springer Proceedings in Mathematics & Statistics ((PROMS,volume 19))

Abstract

In this paper, we propose a new fear index based on (equity) option surfaces of an index and its components. The quantification of the fear level will be solely based on option price data. The index takes into account market risk via the VIX volatility barometer, liquidity risk via the concept of implied liquidity, and systemic risk and herd behavior via the concept of comonotonicity. It thus allows us to measure an overall level of fear (excluding credit risk) in the market as well as to identify precisely the individual importance of the distinct risk components (market, liquidity, or systemic risk). As a an additional result, we also derive an upperbound for the VIX.

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Author information

Authors and Affiliations

  1. Department of Accountancy, Finance and Insurance, Katholieke Universiteit Leuven, Naamsestraat 69, 3000, Leuven, Belgium

    J. Dhaene & D. Linders

  2. Faculty of Business and Economics, Katholieke Universiteit Leuven, Naamsestraat 69, 3000, Leuven, Belgium

    J. Dony

  3. Department of Mathematics, Katholieke Universiteit Leuven, Celestijnenlaan 200B, Leuven, Belgium

    M. B. Forys & W. Schoutens

Authors
  1. J. Dhaene
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  2. J. Dony
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  3. M. B. Forys
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  4. D. Linders
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  5. W. Schoutens
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Corresponding author

Correspondence to J. Dhaene .

Editor information

Editors and Affiliations

  1. , Dublin City Univ. Business School, Dublin City University, Ballymun Rd, Dublin 9, Dublin 9, Ireland

    Mark Cummins

  2. , Kemmy Business School, University of Limerick, Limerick, Ireland

    Finbarr Murphy

  3. Inst. for Numerical Computat. & Analy., 7 - 9 Dame Court, Dublin 2, Dublin 2, Ireland

    John J.H. Miller

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Dhaene, J., Dony, J., Forys, M.B., Linders, D., Schoutens, W. (2012). FIX: The Fear Index—Measuring Market Fear. In: Cummins, M., Murphy, F., Miller, J. (eds) Topics in Numerical Methods for Finance. Springer Proceedings in Mathematics & Statistics, vol 19. Springer, Boston, MA. https://doi.org/10.1007/978-1-4614-3433-7_4

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